Stock market gains or sustained economic recovery: What comes first?

Fibonacci Forecaster

The unemployment rate dropped to 7.5% and the market did not drop! I was a little surprised about that. From prior sequences it appeared the market might be allergic to the end of the easing cycle. That means they aren’t that concerned with the end of QE and the tightening of rates. Perhaps the market knows something the rest of us don’t. Maybe, just maybe the economy is really going to turn a corner this year. The monthly number was +165K which is decent. They have to do this every month and better. At this rate it’s almost 2 million jobs a year and in a Presidential term that comes out to 8 million jobs which basically is near the number a Presidential candidate hypes when he runs for office. So it took him a while but Obama at least seeing some of the statistics go his way. But there’s still way too much uncertainty and it does not appear the real prosperity from a Dow over 15000 is being felt on Main Street.

To me the sleeper issue that woke up last week was the geopolitical situation in Syria. They’ve used WMD’s (chemical weapons) on their own people. The Bush administration built its whole basis for attacking Iraq on the WMD issue. While no weapons were ever found, I tend to think Saddam Hussein had them but somehow snuck it out of the country. Now we have an unstable situation in Syria which is an incubator for terrorist camps and weapons. They also have the pipeline to Iran and the situation continues to destabilize. Am I suggesting we go in there and clean it up? No and the main reason I feel that way is there’s no guarantee whoever comes in next will be any better. The prototype is Egypt where we went from a somewhat neutral/ friendly dictator in Mubarak to an absolute disaster. The Muslim Brotherhood is not our friend. Not only are they not our friend, I believe they are following the playbook of the 1930’s until they get strong enough. Early in his despotic regime Hitler played peacemaker mostly until the Berlin Olympics. He was viewed as a visionary, a man of peace, the great leader that brought hope back to the German people. We know how that turned out. Here in the early years the Brotherhood needs Western aid so they play up to the US. Make no mistake, they would eradicate Israel if they could and that is their plan. At some point in time Morsi will really flip and we’ll see his true colors but it might be too late by then.

The idea that we are going to replace these despots with pro-Western friendly governments has to be one of the great foreign policy blunders of the new 21st century. Here’s the problem, when we won WWII and emerged as the big superpower while the British Empire disintegrated, it was easy for us to install people like the Shah of Iran. There was no such thing as militant Islamism and if there was they were in the embryo stage. How many of you are familiar with the Grand Mufti? He was one of the original extremist Muslims of the 20th century. He was a buddy of Hitler’s. Back in the 40’s and 50’s the only government really strong enough to stand up to the US was Saudi Arabia who ended up supplying oil to both the Americans and the Nazis but only ended up being pro American when the old king finally figured out which way the wind was blowing.

What I am trying to say is I think eventually we are going to be involved in the Middle East. I would have thought the trouble would be Iraq and somehow that got put on the back burner until they elect their new President. These were my thoughts throughout the week as I thought about this column. Then I woke up this weekend to find Israel joining the battle. Israel is going to do what they have to do in order to be sure Hezbollah does not get weapons of mass destruction.

So why are we talking about this? Here the markets are back at new highs. The SPX is beyond 1597 (Fibonacci) and the DAX is back up at new highs and challenging the 2007 peak. So much for the European correction. I commissioned you to watch the FTSE as a guide for US markets. If you did that, the sneaky bull that never quits didn’t surprise you.

For the record, the March highs never had great readings for a long term top. We had some decent symmetry on the NASDAQ plus the 1597 high. I thought the October pivot was stronger. Here’s the problem. This market is a freight train and in our work we have to see how much symmetry is involved at a high because it will take more than a few mediocre readings to stop a freight train. If we didn’t have such a freight train it would take less to stall it out. Right here we are sitting at the 2 year anniversary to the major turn in both the oil market and bottom in the US Dollar. We’ve discussed that pivot many times. For oil it’s one of the best I’ve ever seen as it’s a perfect storm of Gann and Fibonacci (903dg and 609 trading days). We could get a reaction to this but I think this market can still go higher. I’m not seriously thinking about a longer term top now until the DAX gets near 7000.

So let’s tie all of this together.

Here’s the long term NASDAQ. By August, we’ll be at 161 months from the top of the NASDAQ bubble. It could be a fairly decent sized time window and since 162 hits in September, if we continue drifting higher throughout the summer we could see a VIX near 8. There’s a chance we are setting ourselves up for one of those Septembers to not remember. Who knows what could happen but when we are talking Syria, Israel and Iran the potential is there for something HUGE. It could be the black swan of the year because when you have a VIX so low nobody is really taking this stuff seriously. Even right now, with Israel blowing out a few rockets into Syria people are not taking the potential for bigger war more seriously. Could we see a geopolitical event that ties into our 161 month time window? I can’t rule it out.

Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.